‘Sheer nonsense’ to compare household with government budgets: Niti Aayog

Niti Aayog vice-chairman Rajiv Kumar called for new definitions to be adopted for government expenditure.

business Updated: Apr 08, 2018 17:51 IST
Indo Asian News Service, New Delhi
Niti Aayog,Rajiv Kumar,government expenditure
Rajiv Kumar (pictured) said Niti Aayog is working to design performance and outcome-based parameters for all budget items to improve efficiency of public expenditure.(Twitter/@RajivKumar1)

Decrying the economic orthodoxy in India handed down from Europe of cutting fiscal deficits to balance budgets, Niti Aayog vice-chairman Rajiv Kumar on Sunday called for new definitions to be adopted for government expenditure and described as fallacious comparisons between household and national budgets.

Speaking at industry chamber CII’s Annual Session 2018 in New Delhi, Kumar also said Niti Aayog, which has replaced the erstwhile Planning Commission, is currently working to design performance and outcome-based parameters for all budget items to improve efficiency of public expenditure.

“I strongly believe that macro policy has to be counter-cyclical. When private investment is weak and jobs are needed, then the government has to step in (with investment),” said Kumar at a session titled “The Fiscal Conundrum”.

“It is sheer nonsense to compare household with government budgets, a trend that was started with (former British Prime Minister) Margaret Thatcher,” he said, explaining that the whole is always much more than the mere sum of individual parts.

“We need to think of the fiscal situation of the country as a whole and for all the levels of government including the local,” he said, adding, however, that it was important to maintain a “delicate fiscal balance” and governments should not engage in populist measures.

“There is no reason for fiscal populism. It is to rein in politicians and governments taking populist measures that the FRBM (Fiscal Responsibility and Budget Management) Act, 2003, came along,” Kumar said.

Presenting his last full Budget in February before the general elections early in 2019, finance minister Arun Jaitley made a significant announcement of fiscal slippage with implications for pushing inflation, revising upwards the government’s fiscal deficit target for 2017-18 to 3.5 per cent of the GDP, or the equivalent of Rs 5.95 lakh crore.

The higher target came in place of the 3.2 per cent — or Rs 5.46 lakh crore — for the current fiscal announced earlier. In the Budget, Jaitley also announced that the minimum support price (MSP) for notified kharif crops will be 1.5 times the input cost, and also stepped up total budgetary allocation for the sector for next fiscal by about 5 per cent.

Criticising the “fetish” of fiscal deficit, the Niti Aayog vice-chairman said he preferred, instead, to use the measure of revenue deficit and that government borrowing for investment whose returns would be higher than the interest paid is a good thing.

“Let us come up with new definitions, rather than ideology and stick with rules and regulations that are outdated,” he said. “Education and health are now defined as revenue expenditure... Let us put all these under capital expenditure... all these are productivity enhancing, with education one is creating human capital.”

“With a view to improve efficiency of public expenditure and public sector performance, the Niti Aayog is working to create performance and outcome-based measures for all budget line items,” he added.

Emeritus professor of Economics at Jawaharlal Nehru University, Deepak Nayyar pointed out that currently investment in India as a proportion to GDP was 6 per cent lower at a time of sluggish private investment than some years back and that the “fiscal space” of the states was limited by the fact that they need RBI permission to borrow.

First Published: Apr 08, 2018 17:26 IST